financial wellness program

Why a Financial Wellness Program can Deliver Powerful Positive Results

We all know how much havoc stress can wreak on your life. But do you know how much stress can negatively impact your business? Per Mental Health America, stress costs employers $500 billion in lost productivity, annually. Financial stress, in particular, has a significant adverse effect on both your employees and business as a whole.

According to the Financial Fitness Group, over 80 percent of employees have been affected by financial stress. This financial stress alone costs U.S. businesses close to $300 billion a year in unscheduled absenteeism, reduced employee productivity, and higher employee turnover.

Clearly financial stress is wreaking havoc on your business. So what, as an employer, can you do to help employees dealing with financial stress. In this article, we’ll discuss the two leading sources of financial stress and its effects on your staff. Plus, we’ll define financial wellness, its benefits to a business, and how your company can improve its financial wellness plan.


2 Sources of Financial Stress

A 2018 survey from Bankrate found 69 percent of employees have lost sleep from time-to-time over something they’re worried about. And, the top concern for these employees was money. Another study by Enrich Financial Wellness delivered remarkably similar results.

According to the study, 49 percent of U.S. employees are concerned about their finances. Furthermore, 46 percent of employees consider finances their primary source of stress and 48 percent with financial stress are distracted at work. As an employer, it’s imperative to keep your employees safe and healthy.

financial stress

Research has determined those losing sleep are more prone to both depression and anxiety. Depression and anxiety, in turn, wreak havoc on an employee’s life and productivity. Depression costs employers up to $44 billion annually, and an estimated 200 million lost work days each year. The cost from sleep deprivation is even more significant to the U.S. economy at an estimated $411 billion a year, according to the Rand Institute.

So, we know people are worried about their finances, but what, precisely, about their finances has people worried? Your employees are likely to be worried about either near-term expenses or retirement. Per BenefitsPro, 65 percent of employees report that keeping up with monthly expenses represents their biggest financial worry. On the other hand, 64 percent of employees worry about running out of money in retirement.

If you’re a millennial who’s just entered the workforce, chances are you’ll be more focused on reducing near-term expenses or paying down debt. But, as you age, you become increasingly likely to think of retirement expenses. Here’s the good news. The solution for both financial worries is the same…


Read 15 reasons why you need financial wellness in your workplace


What is Financial Wellness?

Financial wellness, per Financial Finesse, is a state of well-being where an individual has achieved minimal financial stress, established a strong financial foundation, and created an ongoing plan to help reach future financial goals.


How Can You Make An Effective Financial Wellness Program?

1. Provide an Initial Financial Test

There are several tips for employers to use to improve the effectiveness of their financial wellness program. The first is to give participants an initial financial assessment. A financial test can be an excellent learning opportunity for most employees. This exam can show staff where their financial strengths and weaknesses lie.

taking a test

2. Basic Financial Education

It’s imperative your employees understand the fundamentals of money management, so they have enough information to make the right financial decisions. For example, do your employees know how interest rates work and the power compound interest over time in their retirement savings?

A recent study from the FINRA Foundation pointed to just how necessary financial education is. According to the study, two-thirds of Americans would fail a financial literacy test. Regardless of the specific program, education is the best way to improve employee engagement with an employee benefit.


Read more about how to establish a financial wellness plan of your own. 


3. Create a Budget

Per, BenefitsPro, one of the best things your employees can do to learn more about their financial situation is also one of the easiest: create a budget for yourself. A budget allows workers to see precisely where their money is going each month. This information helps individuals understand where they can cut back, and save money, in the future.


4. Provide a Financial Coach

A crucial step when creating a financial wellness plan is to provide employees access to a financial coach. There’s a cornucopia of free or cheap financial resources available. But none quite compare to the power of an unbiased, experienced financial guide.

Financial coaches give your employees confidence in a field that is otherwise full of doubt and second-guessing. These coaches give workers an outlet to discuss their ideas, or questions before they take any concrete actions. This coaching works to build confidence in your: financial knowledge, decision-making, and goal setting.


5. Make Education Flexible

Flexibility is vital for the success of your financial wellness program. The more you can personalize your program for every individual, the more effective it is. There are several actions your firm can take to make your financial wellness plan more flexible.

First, create different types of educational tools, with different content, for different generations. People prefer to learn via different methods. Some are visual learners, whereas others prefer an audio lecture. Similarly, we’ve already covered how different generations tend to have different financial goals.

So, for millennials, it makes sense to use online and mobile-accessible programs which cover topics such as debt management or student loan repayment. For baby boomers, physical content such as worksheets or flyers that focus on saving for retirement is likely to be most effective.


The Wrap

Whether your employees are worried about near-term expenses, or their retirement, chances are they could both benefit from participation in a financial wellness program. These programs can help reduce employees’ financial stress, boost productivity, improve employee engagement and retention, and reduce healthcare costs.

employee benefits plan

19 Numbers You Need to Know for Your 2019 Employee Benefits Plan

Every year the benefits industry is inundated with a series of ever-changing numbers your employees must attempt to keep straight. Next year, due to the recent tax overhaul, there are even more numbers for your staff to remember.

But, luckily for you, The Olson Group is here to tell you what these numbers are and why they matter to you and your employees. In this article, we’ll tell you the 19 benefits numbers you need to know for your 2019 employee benefits plan. Below you’ll find these 19 employee benefits plan numbers separated into three categories. Numbers related to taxes, retirement and health benefits.


Tax Numbers to Know

1. Annual Exclusion for Gifts

The annual exclusion for gifts is the same for the calendar year 2019 as it was for last year at $15,000.

annual gift exclusion

2. Estate Tax Exclusion

Estates of decedents who die during 2019 will have a basic exclusion amount of $11,400,000. This total is an increase from last year’s total of $11,180,000 for estates of decedents who died in 2018.


3. Earned Income Credit

The maximum earned income credit amount for 2019 is $6,557 for taxpayers who are filing jointly or have three or more qualifying children. This amount is an increase from the 2018 limit of $6,431.


4. Tax Rates

There are seven tax rates for the 2019 tax year:

  • 37 percent for individual single taxpayers with incomes greater than $510,300 ($612,350 for married couples filing jointly)
  • 35 percent for incomes over $204,100 ($408,200 for couples)
  • 32 percent for incomes over $160,725 ($321,450 for couples)
  • 24 percent for incomes over $84,200 ($168,400 for couples)
  • 22 percent for incomes over $39,475 ($78,950 for couples)
  • 12 percent for incomes over $9,700 ($19,400 for couples)
  • 10 percent for single individuals with incomes of $9,700 or less ($19,400 for couples)


5. Standard Deduction

The standard deduction, for those married and filing jointly will rise to $24,400 for the tax year 2019, up $400 from 2018. For single taxpayers or married individuals filing separately, the standard deduction will rise to $12,200 for 2019, up $200 from the previous year. Finally, for heads of households, the standard deduction for 2019 will be $18,350, up $350 from 2018.


Retirement Numbers to Know

6. Pre-Tax Contribution Limits for 401(k)

The pre-tax contribution limits for employees who participate in a 401(k), 403(b), and most 457 plans increased for 2019 to $19,000. This number is an increase of $500 from the previous year. The new contribution limit also applies to the federal government’s Thrift Savings Plan.


7. Catch-Up Contribution Limits for 401(k)

Employees participating in a 401(k), and who are ages 50 and over, can contribute an additional $6,000 for 2019. This catch-up limit is the same as it was in 2018.


8. IRA Contribution Limits

Contribution limits for IRAs are being raised to $6,000 for 2019. Next year’s limit is an increase of $500 from the previous year and the first increase in contribution limits since 2013. Note: the catch-up contribution limit for people 50 and over will remain at $1,000.


9. Social Security COLA

Social security recipients will receive an increase of 2.8 percent as a cost-of-living adjustment, for 2019. This percentage marks the largest COLA increase since 2012. The estimated increase for the average social security beneficiary is $39 a month or $468 a year.


10. Maximum Monthly Payout

The maximum monthly amount a retired worker, at full retirement age, can make from social security is $2,861 for 2019. This is a monthly increase of $73 a month, or $876 a year from 2018.



Health Numbers to Know

11. Annual HSA Contribution Limit for Individuals

The annual health savings account contribution limit for individuals with single medical coverage in 2019 is $3,500. This represents a $50 increase from the previous year.

12. Annual HSA Contribution Limit for Families

For HSAs linked to family health coverage in 2019, the contribution limit is $7,000. An increase of $100 from 2018.


13. HDHP Minimum Deductible for Individuals

The minimum deductible for a qualifying high-deductible health plan will remain $1,350 for individual coverage. This amount is the same as it was last year.


14. HDHP Minimum Deductible for Families

Similarly, the minimum deductible for a qualifying high-deductible health plan for family coverage will remain the same for 2019 as it was for 2018, at $2,700.


15. HDHP Maximum Out-of-Pocket Amounts for Individuals

For those with individual coverage in 2019, the maximum limit for out-of-pocket costs will increase to $6,750. Up $100 from 2018. Note: Out-of-pocket costs include deductibles, copayments, and other amounts used for healthcare, but don’t include premiums.


16. HDHP Maximum Out-of-Pocket Amounts for Families

Out-of-pocket costs that don’t include premiums will have a maximum limit of $13,500 for family coverage. This is an increase of $200 from the previous year.


17. HSA Catch-Up Contributions

Those who are 55 years or older can contribute an extra $1,000 to their health savings account in 2019, the same as it was for 2018.


18. FSA Contribution Limit

The maximum contribution limit for a health flexible spending account is $2,700 for 2019. This marks an increase of $50 from the prior year. It’s important to note this increase also applies to limited-purpose FSAs, which are restricted to dental and vision care services, and can be used in tandem with HSAs.


19. No Penalty for a Lack of Health Coverage

The dollar amount used to determine the penalty for those not maintaining minimum essential health coverage is zero, per the tax overhaul passed in 2017. This penalty’s amount was $695 in 2018.


The Wrap

The employee benefits industry is a constantly evolving landscape. And ensuring your firm’s compliance is a must for every employer. As you traverse through the 2019 plan year, make sure to keep these 19 numbers in mind so you can make your best employee benefits plan possible.

financial literacy

11 Terms Your Employees Need to Know for Better Financial Literacy

Financial literacy means having a basic knowledge and understanding of financial matters to manage your resources effectively for a lifetime of economic well-being. What percentage of the U.S. do you think is financially literate? The answer may surprise you.

According to research by TIAA, only 16 percent of Americans have a high level of financial literacy. Economic illiteracy is rampant throughout the country. And, the adverse effects of this financial illiteracy are more relevant to your business than you likely realize.

A 2016 article from The Atlantic details the many ways financial illiteracy can negatively impact your staff. According to the article, individuals with lower levels of debt literacy are more likely to do things that result in higher fees and costs. In fact, up to one-third of the charges paid on credit cards are a result of a lack of knowledge.

Similarly, a new survey by The Knowledge Academy found many Americans can’t define simple financial terms. In this article, we’ll detail the top 11 financial terms that Americans are least confident about the meaning of, then detail why financial education matters.


What Your Employees Don’t Know…

Here are the top eleven financial terms Americans struggle with understanding, in descending order. All percentages equate to the number of respondents who claimed they weren’t confident in the meaning of the word, according to The Knowledge Academy’s survey.


11. Amortization – 36%

Amortization is the process of paying off debt with a fixed repayment schedule in regular installments, over time. People typically use amortization for loans such as your mortgage or a car loan. Applying amortization to a loan means, each payment includes the interest amount plus a chunk of the loan’s principal total.

amortization schedule

So, through amortization, you pay proportionally less in interest each month, until the entire loan is paid off. But amortization also refers to the spreading of the costs of an intangible asset over a specific period of time. Amortization for intangible assets occurs over the asset’s useful life.


10. Liquidity – 37%

Liquidity is the degree to which an asset or security can be bought or sold. Because cash can be converted into other assets the most easily, it’s used as the standard for liquidity. Treasury bills, notes, stocks, and bonds are all other examples of highly liquid assets. Assets that have low liquidity include real estate, art, and collectibles.


9. Mutual Fund – 39%

A mutual fund is an investment vehicle that allows you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities in an account called a portfolio. Professional money managers typically operate mutual funds. These managers pick what investments make up the fund.

The main benefit of a mutual fund is they grant investors access to assets they otherwise wouldn’t have the resources to invest in. It’s important to note that mutual fund investors don’t own the securities in which they invest; instead, they only own shares in the fund itself.


8. Roth IRA – 39%

An IRA, or individual retirement account, is an investment vehicle for individuals looking to save for retirement. Individual retirement accounts allow investors to save with tax-free growth or on a tax-deferred basis, dependent on the type of IRA you use.

A Roth IRA differs from a traditional IRA in the way it’s taxed, and how you make contributions. Under a Roth IRA, you make contributions with post-tax money. Then, your money grows tax-free and qualified distributions are tax-free.

You contribute to a traditional IRA, on the other hand, with pre-taxed dollars. But, money in a traditional IRA grows on a tax-deferred basis rather than tax-free as with a Roth IRA.


7. Capital Gains and Losses – 40%

A capital gain is any profit gained when you sell a capital asset, which includes assets such as stocks, bonds, mutual fund shares, or property. A capital loss, on the other hand, is a loss on the sale of such a capital asset.

There are two types of capital gains and losses. Both a loss and gain can be considered either short or long-term. Short-term gains come from the sale of property owned one year or less. Whereas long-term gains come from the sale of property held more than one year. These same rules apply for capital loses.


6. Annuity – 41%

An annuity is an investment vehicle that pays out a fixed stream of payments to an individual. Financial institutions create and sell annuities, primarily for retirees. Individuals invest in an annuity, which the financial institution consequently invests for the annuity owner.

retirement advisor

Then at a specific point in the future, upon annuitization, the annuity issues payments. These payments can be made monthly, quarterly, annually, or in a lump sum.

There are two main types of annuities, a fixed annuity and a variable annuity. How much you receive from each payment depends on which annuity type you select. A fixed annuity provides regular, periodic payments to the annuitant.

Variable annuities allow the owner to, potentially, receive greater future cash flows. If the investments of the annuity fund do well the account holder receives more substantial payments. Consequently, they give the owner smaller payments if the annuity’s investments do poorly.


5. Endowment – 42%

An endowment is a donation of money or property to a non-profit organization such as a hospital, university, church, or scholarship fund. This organization then uses the donation for a specific purpose.

Endowment funds are typically organized as a trust, a private foundation, or a public charity. They usually come with specific rules and obligations. These rules help establish the long-term growth of the financial asset.


4. Stock Options – 43%

Stock options give the holder the right, but not the obligation, to purchase or sell a stock at an agreed-upon price within a specific period of time.  A stock option usually represents 100 shares of an underlying stock.

stock options

Stock options typically give holders one of two types of options. A call is when the holder has the right to purchase the stock at a specified price before the option expires. A put option means the holder has the right to sell the stock at the stated price before expiration.


3. Asset Allocation – 44%

Asset allocation refers to the investment strategy of mitigating risk by dividing your investments among different asset classes. There is no formula for the right asset allocation. Rather, every person’s asset allocation will differ, according to the individual’s financial goals, risk tolerance, and investment horizon.

The goal of asset allocation is to control risk through diversification of your investment portfolio. Through asset allocation, you can attempt to maximize returns while minimizing risk.


2. Index Fund – 48%

An index fund is a type of a mutual fund. The securities in the portfolio of an index fund are set up to match the components of a whole market index such as the S&P 500 or Russell 2000. So, when prices of commodities in the index decrease, the value of your index fund also decreases and vice versa.


1. Bitcoin – 52%

Bitcoin is a form of digital currency that exists on a blockchain. A blockchain is a public ledger on the Internet. These public ledgers use cryptography to secure their transactions, hence the name cryptocurrency. It’s also important to know that no one central authority that updates this ledger.

Instead, computers run the respective cryptocurrency’s software in a peer-to-peer network. As a result, the currency is managed by a consensus of the computers in the network. “Mining,” is the process of finding this consensus on the shared public ledger.

The first cryptocurrency created was Bitcoin. But since its conception, hundreds of other cryptocurrencies have been built. Now over 150,000 merchants worldwide accept bitcoin as payment for goods and services. In total, the cryptocurrency industry has grown to around $38 billion in market capitalization.


Read more about purchasing Bitcoin as a part of your retirement portfolio.


The Wrap

These 11 terms are just a handful of the financial vocabulary your employees need to know. Learning necessary financial words such as the above terms, helps employees improve their financial literacy. The more financially literate your employees are, the less their work suffers from the genuine, adverse effects of financial stress.

man and woman with dog

15 Reasons Why You Need Financial Wellness in the Workplace [Infographic]

It’s impossible to overstate the importance of financial wellness in the workplace. This benefit works to protect your employees financially, and otherwise. Finances and the stress they cause can have a substantial impact on your organization’s success.

According to a 2017 survey from Mercer, employers can lose up to $250 billion a year due to employees’ stress about their finances, alone. This survey found there is a real risk when workers spend time worrying about their finances. At any given time, approximately five percent of an organization’s total payroll is at risk.

If you let it, financial stress can dominate your workforce, and therefore your company’s bottom line. Luckily there are ways to battle back against financial stress. One of the best methods is to implement a financial wellness program.

These programs help to improve your staff’s financial education and create a long-term plan to reach future financial goals. Educating and planning for the future work together to lessen individual’s financial stress.


Financial Wellness in the Workplace


1. $500 Billion

Stress costs U.S. businesses a total of $500 billion a year in lost productivity, according to Mental Health America. This statistic demonstrates the immense adverse impact stress can have on your business.


2. #1 Cause

Finances, according to several studies, is the top cause of stress for American employees, young people, and couples. Again, each of these studies shows the powerful influence finances have on essentially everyone.


3. 54 Percent of Workers

According to PricewaterhouseCoopers, 54 percent of workers say they’re stressed out about finances. So, it’s likely in your company now, more than half of your employees are facing stress due to money.


4. 2/3 of Americans

A FINRA Foundation study found 2/3 of Americans would fail a financial literacy test. Without the proper financial education, your workers will struggle with even the most simple financial principles. Basic financial education has to be a part of your financial wellness program to combat the effects of financial stress.



5. 54 Percent of Employees

Per, PricewaterhouseCoopers, 54 percent of employees who identify as being financially stressed say they’ll likely use their retirement funds for expenses other than retirement. Those who are financially stressed are more likely to make financial mistakes.

A financial misstep, like early withdrawal from a retirement account, can be serious for individuals. And these financial missteps only grow in gravity with the age of the said individual. Financial wellness can help these individuals avoid such egregious financial.


6. 53 Percent of Workers

According to BenefitsPro, 53 percent of employees have skipped or postponed at least one healthcare issue, to save money. It’s important to remember a significant part of financial wellness is dependent on health.

Medical treatment and health insurance are costly, and good health can save you from the potentially astronomical cost of care in the U.S. Make sure your employees are educated healthcare consumers and they can save thousands of dollars over the course of even one year.


7. 5.5 Percent

The average worker, according to BenefitsPro, is only contributing 5.5 percent of their income into retirement. This figure is almost ten percent less than the typically recommended average of 15 percent. The fewer employees save for retirement, the longer they’ll have to work.


8. 50 Percent of Employees

Again, per BenefitsPro, almost 50 percent of workers acknowledge they spend time at work dealing with finances. In fact, these people spend an average of 45 minutes per day, or three hours a week, dealing with personal finances at work.


9. 78 Percent of Americans

Seventy-eight percent of Americans said they live paycheck to paycheck, according to a report from CareerBuilder. Those living paycheck to paycheck are more likely to be in debt and not saving for retirement or emergencies.

Lacking these savings increases the likelihood of your employees’ suffering financial stress. Most financial experts, for example, recommend having, at least, a six-month emergency fund. If a majority of your staff is living paycheck to paycheck they likely have nowhere near this amount of money saved.


10. 64 Percent of Workers

Over half, 64 percent, or workers in the U.S. can’t cover a $1,000 emergency without borrowing money. Similar to the previous number, this statistic demonstrates the inability of the average American to save money. Financial education services can give employees the knowledge and confidence necessary to avoid unnecessarily borrowing money.


11. 24 Percent of Take-Home Pay

The average U.S. employee spends 24 percent of their take-home pay on consumer debt payments. Similarly, last year, according to the Federal Reserve, the average American household carries $137,063 in debt. Both of these numbers demonstrate the amount debt influences American workers.


12. 50 Percent Reduction

In 2017, the Center for Retirement Research at Boston College found interesting results linking the gender savings gap and financial wellness and education. Their study found these services can reduce the gender savings gap by over 50 percent.

woman texting

This research showed financial literacy and implementing long-term financial education plans increased participation by women in retirement plans. Closing the gender savings gap is imperative for any firm wishing to achieve total employee financial wellness.


13. 40 Percent of Employers

According to research from the International Foundation of Employee Benefit Plans, almost half of U.S workers struggle with navigating their finances. This research found 40 percent of employers say their employees are only a little or not at all financially savvy.


14. 2 in 5 Employers

More than two in five employers report an increased demand for financial education from employees in the past 2 years. Employees are signaling they desire financial wellness and education more and more.


15. 19.2 and 56 Percent of Participants

According to Employee Benefit News, participants in financial wellness programs demonstrate real improvement in their financial knowledge. The percentage of participants felt “highly stressed” about personal finances fell from 52.4 percent to 19.2 percent after completion of a financial wellness program.

Similarly, 56 percent of these participants also said they believe they’re better able to manage monthly cash flow better after the completion of a financial wellness program.


The Wrap

Financial stress has a tangible, and sizable, impact on your firm’s bottom line. The above 15 statistics show the true influence of financial stress on your employees. Similarly, the demonstrate how a financial wellness program in the workplace can reverse these negative effects. Implement a financial wellness program and get your employees’ finances healthy.

financial wellness definition

Financial Wellness Definition: How This Benefit Boosts Business

Financial stress today is kind of like the Cucumber Melon scent from Bath & BodyWorks in the early 2000s. Despite its near ubiquity, seemingly nobody is talking about how bad it is. Unlike cucumber melon lotion though, the adverse effects of financial stress go beyond offended olfactory sensors. The effect financial stress can have on your workforce is extensive in both size and impact.

Per BenefitsPro, more than 70 percent of Americans report some level of financial stress at least once per month. In fact, according to a different BenefitsPro article, almost 50 percent of workers say they spend time dealing with personal finances. Also, these employees spend an average of 45 minutes at work, a day, managing their personal finances.

Similarly, according to a 2017 survey from Mercer, employers can lose up to $250 billion a year due to employees’ stress about their finances. Mercer found that approximately 5 percent of an organization’s total payroll is at risk, at any given time, from time unproductively spent worrying.

woman worrying

So, as an organization, how do you combat these effects? The answer is financial wellness. In this article, we’ll give you a concise financial wellness definition. Additionally, we’ll break down how to create a financial wellness plan of your own, and how is plan can advance your business results.


Financial Wellness Definition

Financial wellness, as defined by Financial Finesse, is a state of well-being where an individual has achieved minimal financial stress, established a strong financial foundation, and created an ongoing plan to help reach future financial goals.


Making a Financial Wellness Program

There are many ways you can build your organization’s financial wellness program. Still, to develop a quality plan, there are specific elements it should include.


1. Clear and Concise Actons

When it comes to financial wellness, your employees need clear and concise actions to follow. The financial industry can get confusing quick. Your staff needs a step-by-step plan to make this subject easier to understand. The easier your program is to understand, the easier your employees can maximize the effectiveness of their financial wellness plan.


2. Ask Participants What They Want/Need

If you want to provide the best financial wellness plan possible, a fundamental first step is asking what your employees want. The more catered your program is to your employees’ desires, the more likely this program is to succeed. To begin the process of discovering your employees’ financial wellness desires, give them an initial financial assessment.

woman on phone

A quick assessment can be a tremendous learning opportunity for employees too. This assessment gives the taker a breakdown of a person’s financial strengths and weaknesses. A financial evaluation can help people realize where they should focus their financial efforts.

For example, a person living paycheck-to-paycheck might be focusing too much on retirement rather than managing their consumer debt.


3. Make Financial Education Flexible

Flexibility is vital for the success of your financial wellness program. The more you can personalize your program for every individual, the more effective it is. There are several actions your firm can take to make your financial wellness plan more flexible.

First, make sure you provide financial education in multiple languages.  According to the Chicago Tribune, the amount of non-English speaking citizens continues to grow. As of 2016, there were over 35 million U.S. citizens over 18 years old, who speak a language other than English at home. Support your non-native speakers and their families with bilingual education plans.

Second, create different types of educational tools for different generations. People prefer to learn via different methods. Some are visual learners, whereas others prefer an audio lecture. These differences in preferred learning method are especially prevalent when comparing generations.

person with a stack of books

Millennials, for example, are likely to prefer an online and mobile-accessible program. Baby boomers, on the other hand, are more likely to favor physical content such as worksheets or flyers. Another action you can use to improve your plan’s flexibility is to provide financial education to employees’ spouses.

True financial wellness isn’t possible if only one half of your household is properly educated on the subject. Include spouses in your financial education to ensure the entire family understands what your financial goals are and the steps you need to take to reach them.


4. Create a Budget and Track Spending

Creating a budget to track your monthly spending is critical for positive financial change. A monthly budget allows workers to see precisely where their money is going each month. This information can help individuals understand where they can cut back, and save money, in the future.


5. Provide Access to a Financial Coach

One of the essential steps, when creating a financial wellness plan, is to provide employees access to a financial coach. There are a lot of free resources you can offer your staff to boost their financial knowledge. Still, there’s no replacement for an unbiased, experienced financial guide.

financial coaching

Financial coaches give your employees confidence in a field that is otherwise full of doubt and second-guessing. These coaches give workers an outlet to discuss their ideas, or questions before they take any concrete actions. This coaching works to build confidence in your: financial knowledge, decision-making, and goal setting.


6. Use Quality Content

Your educational content needs to be informative as well as inspiring and motivating. Personal finance, according to BenefitsPro, is 80 percent behavior, and only 20 percent knowledge. Your employees need tangible “wins” to keep them motivated to reach their financial goals. So, if your content is solely informative, its impact is severely limited.


7. Try to Measure Return on Investment (ROI)

The final element your firm should include in its financial wellness plan is to measure the program’s ROI. Part of measuring your plan’s ROI should consist of a pre- and post-financial assessment. We’ve already covered the importance of a pre-assessment, but the post-test is just as significant.

A post-program assessment allows you to measure the change in employee behavior over the course of your financial wellness plan. Additionally, there are multiple analytics your firm should track to measure your program’s ROI. These benchmarking metrics include:

  • Benefit adoption rates
  • Engagement rates with your retirement plan
  • Employee turnover
  • Happiness/stress levels of employees

Employee surveys or interviews are typically the best methods to collect these metrics. Without this information, it’s difficult to know your financial wellness program’s effectiveness.


The Wrap

Financial stress is truly the Cucumber Melon lotion of the business world. It’s simultaneously everywhere, yet awful at the same time. Luckily for your firm, there’s a tangible solution, a financial wellness program.

Now that you know the financial wellness definition, you can institute a financial wellness plan of your own. Use financial wellness to wash away your employees’ financial stress; like a hose to someone slathered in Cucumber Melon lotion.

dol fiduciary rule news

What is the Latest DOL Fiduciary Rule News?

*This article is an update of a previous post.


Strike the bells! The Department of Labor’s (DOL) fiduciary rule is (as of now) dead. The Fifth Circuit Court of Appeals has denied two motions to intervene to defend the DOL’s fiduciary rule. AARP and three state Attorney Generals filed these motions, respectively.

Last week, AARP and the attorney generals from California, Oregon, and New York all filed motions to intervene to defend the fiduciary rule. The decision to deny these parties’ request to step in essentially ends the fiduciary rule.

But before we write the fiduciary rule’s obituary, let’s look at what happened with the rule so far, and what’s likely for it next.


The Fiduciary Rule – Explained

All retirement-financial advisors are required to operate as a fiduciary under the DOL fiduciary rule. A fiduciary is required to put their client’s needs before their own. Those operating as a fiduciary must avoid conflicts of interest and operate with full transparency. This transparency includes all plan costs and fees.

Advisors, if the rule were in place, have to have their clients sign a “best interest contract,” which requires any conflict of interest to be disclosed. According to the DOL, advisors must, “adhere to the best interest standard when making investment recommendations, charge no more than reasonable compensation for services, and refrain from making misleading statements.”

Under current rules advisors, insurance salespeople, and broker-dealers may act under the suitability standard if they choose. The suitability standard only necessitates an investment is considered suitable for a client, at the time of investment. Advisors who don’t operate as a fiduciary can use incentives such as quotas, bonuses, and prizes that may correlate negatively with overall plan performance.


DOL Fiduciary Rule Timeline

The DOL first proposed the rule on April 14, 2015. President Obama then fast-tracked the proposed rule. The DOL officially finalized the rule almost a year later April 6, 2016. Then on February 3, 2017, President Trump issued an executive order instructing the DOL to review and possibly rewrite the regulation.

The rule was delayed, initially, for 60 days on March 3, 2017. Later in June 2017, the rule was reopened for comment and delayed another 30 days. Finally, in August 2017, the DOL proposed pushing back the final deadline for compliance to July 1, 2019. Then, in March of this year, the 5th Circuit Court of Appeals issued a decision that reversed the fiduciary rule.

According to the court, the DOL had overstepped its authority by expanding the word ‘fiduciary.’ Now, the same Court of Appeals has denied two different parties the right to take over the rule’s defense.


What’s Next?

The court’s decision to vacate the rule will take effect next Monday, May 7. And because their motions were denied, AARP and the states aren’t parties to the lawsuit. This decision means they also won’t be able to petition the Supreme Court to review the decision to vacate the rule.

The Labor Department can still petition the Supreme Court. But, the department only has until June 13 to do so. AARP and the states do have one last long-shot at keeping the fiduciary rule alive. They could petition the Fifth Circuit to overturn the denial of intervention. But, according to legal experts, the Circuit Court would likely see this petition as frivolous and overturn it.


What About You?

No matter what happens on the federal or state level, it’s important that individuals and families also understand what’s next for them. The elimination of the fiduciary rule could potentially have a negative impact on your retirement account. According to a 2015 study from the Council of Economic Advisors, conflicted advice was costing American consumers around $15 billion in retirement savings every year.

Under President Trump, there have also been government cutbacks at the Consumer Financial Protection Bureau. These cutbacks, in combination with the defeat of the fiduciary rule, could increase consumer risk. To combat this risk, it will be important to look for advisers and institutions you trust, and who will act as a fiduciary on your behalf.

In addition to doing your research before a meeting, there are certain questions you should ask of potential or current financial advisers. These questions, according to CBS News, include:

  • Will you act as a fiduciary on my behalf?
  • How are you compensated?
  • Do you receive any type of compensation in addition to what I’m paying you?
  • Are you dual-registered?
  • Have you ever been cited by a regulatory or professional body for disciplinary reasons?


The Wrap

Even if the overturn of the rule sticks, there are many ways to protect yourself from subpar retirement advisors. Contact one of our retirement advisors today, to determine what all your options are.

financial education services

Why Your Business Should Be Using Financial Education Services

Nelson Mandela once said, “Education is the most powerful weapon which you can use to change the world.” I’m no Nelson Mandela, but I too believe in the power of education. The world might be a lofty goal, but education can undoubtedly change your business. Before we detail how to use financial education to improve your company; though, we must understand why it’s needed.


Your Staff Doesn’t Know

Financial literacy means having a basic knowledge and understanding of financial matters. While many people may believe they’re financially literate, few actually do. A 2016 article from The Atlantic details the many ways this financial illiteracy can negatively impact your staff.

According to the article, individuals with lower levels of debt literacy are more likely to do things that result in higher fees and charges. In fact, up to one-third of the fees and charges paid on credit cards, are a result of a lack of knowledge. Similarly, misconduct by financial advisors is concentrated in counties a significant elderly population or low levels of financial education.

Clearly, financial literacy is critical. In fact, it’s estimated, by the National Bureau of Economic Research that one-third of the world’s income inequality could be accounted for by disparities in financial knowledge.


The Perils of Financial Stress

Whether you know or not, it’s likely many of your employees are struggling with financial stress. According to a 2017 survey by the American Psychological Association, 62 percent of Americans reported being stressed out about money. This financial stress can wreak havoc on an employee’s health and productivity.

Financial stress can result in increased anxiety and depression. Additionally, Cambridge Credit Counseling says financial stress can also worse such health issues as:

  • Heart Disease/Attack
  • Gastrointestinal Problems
  • Weight Gain/Loss
  • Eating Disorders
  • Diabetes
  • Insomnia
  • Psoriasis
  • Cancer
  • High Blood Pressure
  • Substance Abuse

This financial stress has a similar adverse effect on a business, overall. Last year, a survey from Mercer found that U.S. employers lose up to $250 billion in lost wages due to financial stress. According to the study the average employee spends 13 hours per month, at work, worrying about finances. And 16 percent of respondents, spent more than 20 hours.

The Financial Fitness Group has reported similar statistics that illustrate the impact of financial stress on the workplace. Financial Fitness reported financial stress is affecting a whopping 80 percent of employees. This stress, according to HR Dive, decreases employees’ productivity.

Also, when workers don’t retire, because they can’t afford to, it creates high healthcare costs and a talent drain when these older workers eventually do begin retiring. Financial education can help combat these negative effects.


Financial Education Services

We now know what financial stress is. And, we understand how much of an impact it can have on your employees and business, at large. But the question remains, how do we combat the harmful effects of financial stress? The answer is financial education services.

dollar bill

Financial education services are benefits a company provides to their employees to educate about and improve their financial literacy. Topics covered under financial education can include retirement savings and planning, building emergency savings, budget management, and identity protection.


Designing and Implementing Financial Education Services

Financial education services are like any other employee benefit. You need to have a concrete plan before you implement the policy. When designing your financial education policy, it’s important to include specific features to maximize the policy’s effectiveness. Make sure your financial education consists of these features:


1. A Defined Mission

The first characteristic your financial education plan must have is a clear and concise mission. Your financial education needs to be like a company, in general. A mission statement is necessary to give the education plan a direction and tangible goals. Without a clear path, your education services may sputter and not deliver the results you seek.


2. Adequate Resource Allocation

Your financial education plan needs the proper amount of resources to flourish. Whether you use a third-party or do it in-house, your education plan will require a certain amount of money, time, and company resources. Whoever is responsible for running your financial education plan will need the proper resources to design a course, develop, materials, and possibly train instructors.


3. Outreach/ Awareness

Ensure your employees know about your education plan to maximize the plan’s effectiveness. This advice may seem obvious, but many people don’t realize the importance of internal marketing for employee benefits, and participation suffers as a result. Internal marketing is especially essential for an enhanced benefit offering, such as financial education.

employee advocacy

To get the best participation rates, and subsequently maximize effectiveness, your company must market its financial education services. According to a Guardian study from last June, 80 percent of employees believed they understood their benefits. When, in reality, only 49 percent did. This study highlights the need for organizations to market their benefits, such as financial education, effectively.


4. Accessibility/Inclusivity

A significant component of your financial education plan’s success is making it accessible and inclusive to every member of your organization. This inclusivity means going out of the way to include segments of your workforce that may be underserved by past financial education services. Women, for example, have been traditionally underserved when it comes to access to financial services.

According to 2018 study by BNY Mellon, women still have only 77 percent of the access to the basic financial services that men do. This access is hindered despite the fact women influence or control 25-30 percent of global wealth. Your organization can give women employees access to these services through your financial education plan.

Economic status and age are other examples of diversity your financial education services will need to target, to maximize success. According to a study by MassMutual, those employees who are lower and middle-income workers are much more likely to say they wish their employer did more to help them set financial priorities.


5. One-on-One Meetings

Here at The Olson Group, we firmly believe in the power of one-on-one meetings, especially concerning your finances. Individual meetings give your employees the ability to ask financial questions specific to their situation. These meetings also allow workers to ask questions they wouldn’t ask in a public setting. Use one-on-ones to solidify your workers’ understanding of their financial position.

6. Evaluate and Follow-Up

The final step in creating a successful financial education program is evaluation. Review your program’s curriculum and make sure it’s still relevant for the next year or learning period. Similarly, follow-up with participants to determine their application of the education. You should also use these follow-ups to ask questions on how you can improve the course.


The Wrap

The previously mentioned MassMutual study found there’s a real disparity between the number of employees who want financial education benefits and those who are actually offered it. Only one in four employees are offered financial education at work, but more than half said they’d want their employer to provide more financial education.

So, give your workers what they want. Use financial education services to improve your employees’ financial literacy and strengthen your company-wide performance as a result. Wield your financial education plan like the true performance-improvement weapon it can be.

retirement planning news

The Latest Retirement Planning News for 2018

“I’m going to work until I’m dead.” It’s a phrase you’ve likely heard before. In fact, according to a CareerBuilder survey, one-third of employees 60 or older, plan to work until at least age 70. While not dead, 70 is a full five years past the “normal” retirement age. Additionally, 20 percent of respondents believed they’ll never be able to retire.

So, whether you enjoy your work, or just don’t have enough retirement savings, many Americans believe they will have to work long past age 65.  One of the problems with this line of thinking (there are many problems with it) is the fact that few people get to choose when they retire.

There’s a myriad of reasons workers don’t get to choose their retirement date. People have to deal with health and personal issues, positions are consolidated, and companies close. No matter the reason, employees are retiring before they want, and often, before they’re ready.

With the faltering of Social Security in recent years, the role of the employer in an individual’s retirement planning has increased dramatically. As a result, the employer-sponsored 401(k) has become an important savings vehicle for many Americans. Still, the rules of 401(k)s have been in flux recently.

Here is the latest in retirement planning news you need to know.



A recent survey from Willis Towers Watson found 73 percent of plan sponsors now automatically enroll new participants. Up from 52 percent in 2009. But do the benefits of auto-enrollment outweigh the disadvantages? Is the increase in auto-enrollment helpful to both employers and employees?

Auto-enrollment means that every new employee, upon hire, is automatically enrolled in the company retirement plan, unless they elect otherwise. It’s important to note, a business can never force an employee into a plan enrollment. They must always have the choice to opt out if they desire.

There are several benefits auto-enrollment gives your employees. This feature, first, helps by giving your staff an automatic amount of savings. Similarly, if your company has a matching policy, your employees are essentially getting free money. Another plus of auto-enrollment is there will be more participation in the plan.

Naturally, when your staff is enrolled automatically, it makes it more likely they will stay in the plan. For the employer, there are multiple tax breaks. These tax breaks include a $1,500 tax credit and tax-deductible employer match.

Still, it is imperative to know that auto-enrollment isn’t a retirement cure-all. This feature doesn’t stop workers from creating debt with their personal funds. And the biggest hang-up, for employers, is cost. Implementing and managing an auto-enroll feature in your retirement plan can be costly for employers.



Another 401(k) feature that’s on the rise is automatic contribution escalation. In the previously mentioned survey, 60 percent of employers now offer auto-escalation, a six percent increase since 2014. Auto-escalation is an especially crucial feature considering the current state of retirement savings in America.

We already know that Americans aren’t saving enough. But even those employed with an organization that has a retirement plan, aren’t saving what they should be. Analyses from Fidelity discovered about one in five workers aren’t contributing enough money to get the full company match (usually four to six percent of pretax earnings). Basically, these employees are throwing away “free” money.

Automatic escalation works by automatically raising the percentage of an employees’ pay they invest into their 401(k) plan. The primary purpose of auto-escalation is to push employees past a state of “savings stasis.” As we know, many workers aren’t even saving enough to get the employer match.

And many more are only saving up to that matching line. Most advisors recommend employees save at least 10 percent of their pretax earnings. Auto-escalation is a less painful way to nudge employees into saving more. Because organizations can time the automatic increases to coincide with an individual’s yearly pay increase, they can reduce the effect on an employee’s take-home pay.


Hardship Withdrawals

New provisions included in the budget law passed February 9, makes it easier for employees to make hardship withdrawals from their employer-sponsored 401(k) and 403(b) plans. The new budget act will let participants withdraw their own money, any earnings on their money, and company contributions as part of the withdrawal.

Under previous rules for defined contribution plans, hardship distributions were limited to the elective deferral amount contributed by plan participants. And employees were prohibited from making contributions for six months after making a hardship withdrawal.

withdrawing money

So, with the new rules, employees who take a hardship withdrawal won’t have to suspend their contributions. Subsequently, workers will continue to receive the company match, and don’t have to remember to rejoin the plan, after the suspension ends.

According to James Klein, president of the American Benefits Council, these provisions will benefit employees. Now workers facing emergencies or financial crises can put the money they withdraw back into their plan and allow them to continue to save for retirement.

The budget act will result in five significant changes for defined contribution retirement plans, according to SHRM. These changes:

  1. Remove the six-month prohibition on contributions to retirement plans after a hardship withdrawal.
  2. Remove the requirement for participants first to take a loan.
  3. Permit employers to extend hardship distributions to amounts not previously permitted.
  4. Provide relief for a withdrawn federal tax levy on retirement plan assets.
  5. Provides a California wildfire relief fund.


Participant Fees

A 2018 survey from the Callan Institute found the number of employers who calculated 401(k) and similar plan fees rose to 83 percent, last year. This number represents an increase of four percent over the previous year. Additionally, after reviewing these fees, 40 percent of plan sponsors took actions such as renegotiating fees.

And, as Jamie McAllister (senior vice president at Callan) claims, there should continue to be increased pressure on administrative, investment, and management fees. She noted:

  • Over 50 percent of sponsors intend to renegotiate administrative and record-keeping fees
  • Around 40 percent expect to renegotiate investment management fees

It’s important that plan sponsors consistently calculate plan fees to ensure you’re running the best policy for your employees. And it’s equally imperative to sit down and renegotiate plan fees when applicable, to keep rates sensible.


The Wrap

It’s 2018, your employees don’t, and shouldn’t, have to work until they’re dead. All of this retirement planning news highlights the potential of 401(k)s and similar defined contribution plans to positively affect the financial health of your employees. Visit The Olson Group for more analysis when the IRS announces further retirement planning news.

woman at computer

Should You Buy Bitcoin as Part of Your Retirement Plan?

To Bitcoin or not to Bitcoin, that is the question. Unless you’ve been trapped in the Sunken Place, you’ve likely heard something about Bitcoin or another form of cryptocurrency. Still, there’s a big difference between hearing about something and understanding it. And Bitcoin, despite its rising popularity, can be difficult to understand.

Especially when considering it as a potential investment for your retirement portfolio. Retirement can already be an intimidating subject. When you throw something called cryptocurrency into the mix, it’s easy to understand why people have questions.

Below we’ll break down what Bitcoin is, how it works, the advantages and disadvantages it offers as an investment, and whether or not you should buy bitcoin as part of your retirement portfolio.


What is Bitcoin and How Does It Work?

Bitcoin is a form of digital currency that exists on a blockchain. A blockchain is a public ledger on the Internet. These public ledgers use cryptography to secure their transactions, hence the name cryptocurrency. It’s also important to know there is no one central authority that updates this ledger.

Rather, computers run the respective bitcoin software in a peer-to-peer network. As a result, the currency is managed by a consensus reached by the computers in the network. The process of finding this consensus on the shared public ledger is known as “mining”.

buy bitcoin

Every ten minutes, computers in the network attempt to find an answer to a math problem the bitcoin protocol provides. The “winning” computer updates the ledger for ten minutes. Then it gets to keep the new bitcoins released within that time – equivalent to 12.5 bitcoins.

The first cryptocurrency created was Bitcoin. But since its conception, hundreds of other cryptocurrencies have been created. Now over 150,000 merchants worldwide accept bitcoin as payment for goods and services. In total, the cryptocurrency industry has grown to around $38 billion in market capitalization.


Advantages of Bitcoin as an Investment

Bitcoin, and cryptocurrency, in general, is like any other investment in that there’s always an implicit risk when investing. Still, the level of risk is an attribute worth examining in more detail. These are potential advantages of investing in a cryptocurrency.


1. Growing Industry

When Bitcoin first debuted one of the biggest factors against the currency was its lack of portability. As previously mentioned, there are now over 150,000 merchants, worldwide, who accept Bitcoin as a form of payment. Similarly, new payment exchanges make it possible for Bitcoin owners to shop online from sites such as Amazon.


2. Limited Supply

Another advantage of Bitcoin is the fact there is a finite supply. There will never be more than 21 million in circulation, at any one time. In fact, the amount being circulated will continually shrink. The new supply of Bitcoin halves every four years. This steadily decreasing supply means the network will mine the last coin in 2140.



3. No Custodian Necessary

One important advantage of cryptocurrency as an investment is the fact you don’t need an independent custodian to hold your investment. Investing without a custodian gives individuals full control over your holdings. It also protects investors from third-party mismanagement and fraud.


4. Increased Security

This advantage is tied closely to the previous one. Multisignature wallets are custodial tools that allow Bitcoin investors to maintain complete jurisdiction over their investment. These wallets can have two or three separate, private, keys. All keys are needed before a transaction is authorized. This gives your investment an additional level of security.


5. Independent from Other Markets

Bitcoin and other cryptocurrencies exist separately from traditional assets like stocks and bonds. When there is an economic crisis, bitcoins don’t necessarily fall in value with the rest of your assets. In fact, historically, bitcoin has increased in value in an inverse relationship with these typical investments.


6. Potential ROI

Cryptocurrencies have shown an ability to produce huge returns in short amounts of time. Even compared with higher volatility stocks. For example, $1,000 invested in Bitcoin in 2013, would be worth more than $400,000 today.

bitcoin and money


7. Enhanced Liquidity

Reaping profits from purchased startup equity requires one of three actions. Either another party buys the equity from you, the startup is acquired by another company, or an IPO is issued. But none of these options allow you to control when you cash out your investment.

Cryptocurrency ICOs (initial coin offerings), on the other hand, give investors increased liquidity. Once a cryptocurrency ICO is able to build a large enough network, investors can almost immediately sell off their cryptocurrency.


Disadvantages of Bitcoin as an Investment

Depending on who you ask Bitcoin is a more or less risky investment than other traditional ones such as stocks or bonds. These are some of the potential cons of investing in a cryptocurrency.


1. Legality

Bitcoin, in the U.S., isn’t specifically prohibited as an investment in an IRA. But that doesn’t mean cryptocurrencies will stay kosher for investors. For example, if the bitcoin market implodes and takes investors’ holdings with it, the market could see increased regulation.


2. Volatility

Every investment carries at least a small portion of risk. Cryptocurrencies, though, are much more volatile than bonds, stocks, or even real estate. Major drops in ICO values are just as real of a possibility as the major jumps ICOs have recently experienced.



3. No Guaranteed Growth

According to Entrepreneur, the real value of a cryptocurrency is dependent on creating a strong product and an equally strong network of users will want to use. So, if the network can’t attract users, or never gets them to utilize the platform the currency will likely experience a significant drop-off in value. Many unsuccessful ICOs owe their post-launch failure to a lack of network engagement.


4. Cybersecurity

Like any Internet-based technology, there’s always a chance of a cybersecurity failure. Hackers could theoretically drain bitcoin investors of their entire cryptocurrency assets, in an instant. It’s worth noting bitcoin’s utilization of blockchain technology actually decreases the likelihood of a cyber attack. Still, the possibility of a hacking attack invariably exists.


5. Business Failings

ICOs are like any other startup in that there are many business-related reasons an investment could provide nothing. An ICO that fails to raise enough money, or spends more than expected, could have to shutter their doors before the product has a chance to take off.

Similarly, behind every ICO, like every new business, there is a team of founders. These people are responsible for establishing and building the cryptocurrency from the ground up. As with a startup, make sure you investigate the founding team’s background and determine if they have the right team to execute the undertaking.


Bitcoin in a Retirement Account

The IRS, in March 2014, stated it would treat bitcoin as a commodity for taxation purposes, the way it treats stocks or bonds. Yet, there are still questions limiting the widespread adoption of cryptocurrencies into mutual funds and other common investment vehicles.

A January letter from SEC questioned the risks of manipulation, whether funds could accurately value these products, and how they’d meet demands to redeem virtual currency. An SEC spokesperson said, “there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors.”

You can still add Bitcoin to a self-directed IRA because it’s treated as a commodity by the IRS. In fact, there are already a few cryptocurrency-based IRAs popping up. One of the largest, CoinIRA, has converted more than $15 million into cryptocurrency holdings.

One of the biggest differences between CoinIRA and a normal retirement account is the fees. CoinIRA charges between 10 and 15 percent in a one-time fee. On the flip side, for example, an IRA at Fidelity doesn’t cost anything but charges $4.95 for a U.S. stock trade.


The Wrap

Nobody can tell you whether or not you should include cryptocurrencies in your retirement portfolio. Though the advantages and disadvantages of Bitcoin make it a unique investment. Still, like any other investment it’s critical you do your research and consult with your retirement advisor if you have one. There’s no need to be cryptic about the potential of cryptocurrencies.

employee stock ownership plans

Employee Stock Ownership Plans – A Different Kind of Retirement

Retirement benefits, in today’s workforce, hold a similar spot in employees’ minds as coffee or a steady paycheck; they’re a necessity. Without retirement benefits, your organization will likely experience difficulty recruiting and retaining employees.

As Forbes put it, not paying for a retirement plan is not the financial plus it may seem. While you will save on the retirement benefits, your company will likely:

  • Experience higher health care costs
  • Have to pay above-average wages for comparable positions
  • Lose talent for other organization’s with retirement benefits

So, if you accept that your business needs retirement benefits, where do you go next? It starts with deciding which benefits you will offer your staff. For most organizations, the answer is a 401(k). Still, there are other options available.

One retirement benefit that has declined yet remains relatively popular is an employee stock ownership plan. But what exactly are employee stock ownership plans? Why have they declined in frequency? We’ll define ESOPs and explain exactly how these plans can help your organization.


What is an ESOP?

An employee stock ownership plan (ESOP), according to the National Center for Employee Ownership (NCEO), is defined as “when a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares.”

stock graph

ESOPs are most commonly used for a business owner who doesn’t want to sell to their competitor when they’re retiring. So, they sell it instead to their employees and get some cash out of the deal themselves.

Stock ownership plans, according to Benefits Pro, are used in approximately 9,000 U.S. companies, employing more than 15 million workers. All told the value of these businesses total more than $1.3 trillion.

Over the past decade, participation and assets in ESOPs have increased, but total participation has declined. What’s the explanation behind this conflicting trend? The simple answer is price. It’s both cheaper and easier to set up a company 401(k) as opposed to an employee stock ownership plan. Setting up an ESOP typically costs hundreds of thousands of dollars.

Also, the rules of employee stock ownership plans are complicated. Compared to a straightforward 401(k) plan, ESOPs are more difficult for your employees to understand and appreciate. This confusion can lead to some employees or recruits not valuing ESOPs as much as a more prevalent retirement plan.


Read more about ESOPs and other retirement plans.


How are ESOPs Changing?

A recent settlement between the Department of Labor (DOL) and First Bankers Trust has changed the game for ESOPs. Specifically, the rules have changed for company owners using an ESOP as a vehicle for selling to family members or their management team.


Employee stock ownership plans must now follow the new regulations, produced from this settlement. These new rules include:

  • Trustees that establish ESOPs must demonstrate proper consideration was given to the ESOP as a buyer of a company and/or that it has effective control
  • This demonstration can include establishing a board that includes an independent director, or, receiving a discount on the purchase price

Basically, if an owner wants to sell their shares in an ESOP, they need to have an “outsider” on their board. Or the owner must demonstrate the purchase price was negotiated, in good faith, to determine the fair market value of the stock price.


How Can an ESOP Boost Your Business?

The biggest draw of employee stock ownership plans is that they promote a company and employee alignment. Essentially, ESOPs incentivize employees through participation in company ownership.

employees working

For business owners, an ESOP is also an important vehicle in succession planning. These plans are tools to ensure the organizational culture and current employees would survive and ownership transition. Additionally, ESOPs help business owners avoid or defer capital-gain taxes.

Still, there is more than just anecdotal evidence to suggest that ESOPs can help an organization succeed. Per EBA, employee-owned companies grow about 2.5 percent per year faster than non-employee-owned companies. Similarly, these companies have 1/3 to 1/5 as many layoffs.

But it is not just the business or the business owner, that can benefit from employee stock ownership plans. Employees too, stand to gain from an ESOP. According to Benefits Pro, employee-owners:

  • Are more likely to rise toward the middle class
  • Have 92 percent greater median household net worth than nonemployee-owners
  • Take home 33 percent higher income from wages


Read more about different types of group retirement plans.


The Wrap

Employee stock ownership plans, while expensive, can prove valuable for both employers and employees. While an ESOP may not be a necessity, like that slightly-burnt pot of office-coffee, it can offer your business tangible benefits.